Saudi output jumps 1.1M b/d as OPEC cuts 2026 demand forecast

Saudi Arabia added 1.1 million barrels per day of crude output in July, but most went to storage as Hormuz disruptions blocked exports, while OPEC cut its 2026 demand forecast again.

"The ongoing closure of the Strait of Hormuz and elevated fuel prices continue to weigh on oil consumption," the Paris-based International Energy Agency said in its monthly report, which projects global demand to fall 1.6 million barrels per day this year.

OPEC's monthly report shows Saudi production rose to 8.2 million barrels per day from 7.1 million in June, with seven reporting members adding 1.88 million barrels per day led by Saudi Arabia and Iraq. OPEC+ averaged 37.66 million barrels per day in July, up 1.42 million month-on-month. A separate Reuters survey put OPEC's own output at 19.85 million barrels per day, up 1.17 million month-on-month, as member states restored supplies disrupted by the Middle East war. Yet actual Saudi supply to the market ran about 780,000 barrels per day below declared output, with domestic inventories climbing to their highest since at least 2016, according to IEA estimates. Brent crude traded near $89.81 a barrel Wednesday, up 1 percent, while WTI crude rose 1.1 percent to $84.08, extending multi-day gains.

The divergence between production recovery and export capacity leaves the market dependent on Middle East geopolitics. OPEC now sees 2026 demand growth of 580,000 barrels per day, down from 780,000, while raising its 2027 forecast to 2.16 million from 1.94 million. The IEA projects a 4.3 million barrel-per-day supply decline this year, with a potential 4.61 million barrel-per-day surplus in 2027 if shipping lanes reopen.

Production Recovery Hits the Export Wall

Only eight vessels transited the Strait of Hormuz on Tuesday, compared with 125 to 140 daily before the war, according to shipping data. Both the United States and Iran-aligned Houthi forces reported attacks on ships in Hormuz and the Bab el-Mandeb Strait, while Iran's top security official said Hormuz would remain closed unless Washington accepted Tehran's conditions to end the conflict. The IEA said global supplies rose 2.4 million barrels per day in July to 101.5 million, still 6.3 million below year-ago levels, with Middle Eastern production running 8.3 million barrels per day below pre-war levels as of mid-July. The US Energy Information Administration expects significant disruptions to Middle East crude supplies to persist through the end of 2027, projecting Brent to average $86.81 a barrel this year and WTI $80.88.

The production recovery follows an agreement by seven OPEC+ members, including Russia, to raise their July output caps, although the Middle East conflict prevented full implementation of the agreed increase. Saudi Arabia's output remains well below pre-war levels, and the gap between declared production and actual market deliveries highlights how transport bottlenecks are constraining the group's ability to translate restored capacity into international supply.

Demand Forecasts Diverge by 2.18 Million b/d

OPEC's fourth consecutive downward revision — from 970,000 to 780,000 to 580,000 barrels per day — reflects the toll of high prices and trade disruption on consumption. The IEA is far more pessimistic, projecting a 1.6 million barrel-per-day decline, leaving a 2.18 million barrel-per-day gap between the two agencies. OPEC's upward revision for 2027 suggests the group expects demand recovery to shift later rather than disappear. The last time OPEC cut demand forecasts this aggressively was during the 2020 pandemic, when consumption collapsed by roughly 9 million barrels per day before rebounding.

For OPEC+ producers, the policy calculus is tightening. Restoring output while export routes remain blocked risks building inventories that could flood the market if the Strait of Hormuz reopens. Brent's resilience near $90 reflects the geopolitical premium dominating the demand-side weakness, but a credible ceasefire would quickly invert that dynamic — turning the demand downgrades from a secondary concern into the primary downside driver. The IEA estimates the conflict has depleted roughly 410 million barrels of global inventories, meaning any sustained reopening of shipping lanes would trigger a rapid restocking cycle that could reshape the supply-demand balance within a quarter.

This article is for informational purposes only and does not constitute investment advice.